Correlation Between Microsoft and Jiangxi Sunshine

Can any of the company-specific risk be diversified away by investing in both Microsoft and Jiangxi Sunshine at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and Jiangxi Sunshine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Jiangxi Sunshine Dairy, you can compare the effects of market volatilities on Microsoft and Jiangxi Sunshine and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of Jiangxi Sunshine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Jiangxi Sunshine.

Diversification Opportunities for Microsoft and Jiangxi Sunshine

0.25

Correlation Coefficient

Microsoft  Jiangxi Sunshine

Modest diversification

The 3 months correlation between Microsoft and Jiangxi is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Jiangxi Sunshine Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Sunshine Dairy and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with Jiangxi Sunshine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Sunshine Dairy has no effect on the direction of Microsoft i.e., Microsoft and Jiangxi Sunshine go up and down completely randomly.

Pair Corralation between Microsoft and Jiangxi Sunshine

Given the investment horizon of 90 days Microsoft is expected to generate 0.45 times more return on investment than Jiangxi Sunshine. However, Microsoft is 2.21 times less risky than Jiangxi Sunshine. It trades about 0.06 of its potential returns per unit of risk. Jiangxi Sunshine Dairy is currently generating about 0.02 per unit of risk. If you would invest  37,464  in Microsoft on September 14, 2024 and sell it today you would earn a total of  7,263  from holding Microsoft or generate 19.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.65%
Values	Daily Returns

Microsoft  vs.  Jiangxi Sunshine Dairy

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Jiangxi Sunshine Dairy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Sunshine Dairy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Sunshine sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Jiangxi Sunshine

The main advantage of trading using opposite Microsoft and Jiangxi Sunshine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Jiangxi Sunshine can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Jiangxi Sunshine will offset losses from the drop in Jiangxi Sunshine's long position.

The idea behind Microsoft and Jiangxi Sunshine Dairy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.